The political thoughts and opinions of a pragmatic Canadian Libertarian Economist. Do not mistake me for a real journalist, this is just one man's opinion.

Wednesday, June 10, 2009

When they can't see the forestry sector through the trees...

As much as it pained me to see my government take an equity position in Generous Motors, ultimately the government had no choice. Given how political circumstances are evolving, the Conservative party needs to win the seats where these automotive jobs are located. It was a poor decision economically, but a necessary decision politically. Whether or not this decision proves economically viable in the long term likely depends on the engineering effectiveness of the Chevy Volt. We’ll see if it works. I personally blame the demise of Generous Motors on the Autoworkers Union, which was able to secure too big of a piece of the pie, squeezing R&D.

Sure enough, when it rains it pours and now the forestry sector has its hands out for government money. Where GM can become more viable if it were able to break its Union contracts (which bankruptcy would possibly facilitate), the forestry sector has lost demand that it will never get back. The internets are here to stay, and information displayed on a computer screen has evolved to dramatically decrease the need for words printed on dead trees. The blackberry alone has reduced the demand for how many dead trees annually? I’m guessing a lot. Add to this the real estate bubble that has been inflating for decades in the United States thanks to federally subsidized mortgages, a bubble which has now been popped and is unlikely to ever recover to anywhere near what it was. We have at least a million vacant homes in North America thanks to overproduction, so even when the economy recovers from this crisis there will be a significant time lag before demand for new building projects resumes with any significance. Lest we forget that we also have an upside-down population pyramid, and once we start moving the baby boomers into old age homes, there will be more homes than people to live in them.

The forestry sector must go through a reduction style restructuring because their demand has been decimated and any recovery will be years in the making if it happens at all. You can’t force demand, and if you attempt to subsidize a reduction of it, you are pumping tax money into a black hole. When the economy recovers demand for automobiles will also recover. The trick is that you have to supply what people want to buy. We’ll see if GM can do that. Forestry on the other hand, has lost demand that cannot be recovered by means of innovation. Certainly I would agree that the “black liquor” subsidies in the United States are a fraud and against the interest of international free trade. Just as the Byrd Amendment was a violation of the NAFTA, this subsidy is skewing the market to accomplish a partisan objective.

I would just like to remind the left wingers north of the border whom I have been hearing scream foul over the Byrd Amendment and the “black liquor subsidy”, that these were first written by and the second happened under the watch of…drum roll please…THE LIBERAL DEMOCRATS! Just as the NDP is opposed to free trade and now take the pious high ground of the NAFTA laws, the far left in the United States which has substantially increased their power in government favours protectionism. Canada was overwhelmingly in favour of Obama and the Democrats in this past American election, so those people can’t be shocked that suddenly we see trade barriers erecting faster than Pee Wee Herman at an adult theatre.

But what are the origins of the left wing opposition to trade, and the right approval of free trade? Of course ideologies can as usual be traced back to their roots, Adam Smith V Karl Marx. Recall that Smith died 30 years before Marx was born; therefore he never had the opportunity to debunk his detractor in his theoretical works. Smith recognized that if country A is good at one thing and country B is good at another, then it benefits both to exchange these goods. Specialization creates a more efficient labour force capable of producing a greater quantity of trade goods at a lower cost. The access to external markets allows the country to produce a greater quantity of their most effectively produced goods than they consume while external markets benefit from purchasing a product that they need for far less than it costs them to produce. If every country engages in trade, we can grow the world economies beyond the sum of its parts and see the type of rapid technological innovation that we have seen since World War II. The amount of computing power in an I-Pod would have filled a skyscraper in 1960. Socialism did not create that innovation. In my opinion, there is no such thing as a “Progressive Socialist.”

Marx had a much more narrow view. He opposed trade because in his opinion it created “surplus value” that would be “realized” in an external market. This disregards the fact that a proportion of the “surplus value” is also “realized” in the domestic market in the form of greater revenues and employment, not to mention the whole wide World benefiting from countries engaging in free and fair trade. Marx believed that all production should be local, and anything of need should be produced only where it is needed. Building industries that specialize in specific forms of production increase wealth and prosperity, where Marx was opposed to success. We should all just exist, and not endeavour to be the best that we can be. That inherent desire to suppress success and achievement is why socialism has always failed. Moderate socialism is not as disastrous, but in literally every instance where the pendulum swings too far to the left, failure is the outcome. I know some of my North American counterparts will point to Europe for the success of socialism, but the pendulum over there is swinging back to the right because the Euros have seen light…

On the resource issue, the American left that is now in power is increasing the trade barriers; not only in forestry, but in several commodities and manufactured goods. While Canada should do whatever it can to discourage American protectionism, if the Socialist Democrats want to follow the Marxist doctrine, there is precious little that we can do to stop them. We need the American market as much or more as they need our resources, so our best course of action is patience. We should find new trading partners for our commodities in Europe and Asia, and send the message that if the USA wants to inhibit the flow of goods from Canada, lets also inhibit the flow of the goods they really need, namely resources. We don’t need to start a trade war, just find new customers. Europe is swinging back to the right. They realize that the socialist experiment is not what was promised in the brochure, and that they need a little less Marx and a little more Smith. Let’s sell our energy to Europe, to help them break the hostage-like grip that Russia has on their energy market. Let the USA learn the lessons that Europe has already learned. If the Americans want to experiment with Marxism and its subsequent protectionism, let them see experience for themselves where that road leads, because it ain’t paved with yellow bricks and there sure as hell ain’t no wonderful wizard at its end.

“and whatever happens next is all a blur,but you remember fist can be a verb,and when you finally regain consciousness,you’re bound and gagged in a wedding dress,and the prison guard looks the other way,because he’s the guy you flipped the bird the other day…”